Country Report February Tanzania. Tanzania at a glance: Key changes from last month. February 2004

Transcription

1 Country Report February 2004 Tanzania Tanzania at a glance: OVERVIEW Given the political domination of the ruling party, Chama Cha Mapinduzi (CCM), the Economist Intelligence Unit expects it to win overwhelming victories in the presidential and parliamentary elections which are due to be held in late However, given that the president, Benjamin Mkapa, will not stand for a third term (and will not amend the constitution in order to do so) the battle over who will lead the CCM to the polls is set to increase sharply over the next 18 months. On the economic front, we expect Mr Mkapa to retain his commitment to economic reform and to use his last two years in office to push ahead with structural and institutional reforms. Although this will lead to impressive real GDP growth rates of over 5% in and moderate inflation, the government will need to work hard to convince Tanzanians that they are benefiting from the reforms. Key changes from last month Political outlook Mr Mkapa has fully recovered from an operation on his hip carried out in Switzerland and is back in office. Nevertheless, his illness could be the spark that triggers off the battle over who will lead the CCM to the next polls. Economic policy outlook Following recommendations by the IMF and the World Bank that the government of Zanzibar should reduce the number of civil servants it employs, the chief minister of Zanzibar stated that such a policy would be impractical and that the government would aim to improve the efficiency of the civil service instead. This will undermine the current reform process being undertaken on the islands. Economic forecast The government has begun drafting a supplementary budget for financial year 2003/04 (July-June), as expenditure has been higher than it initially forecast. As the Economist Intelligence Unit had factored this higher than planned expenditure into its calculations, our economic forecast for remains unchanged. February 2004 The Economist Intelligence Unit 15 Regent St, London SW1Y 4LR United Kingdom

2 The Economist Intelligence Unit The Economist Intelligence Unit is a specialist publisher serving companies establishing and managing operations across national borders. For over 50 years it has been a source of information on business developments, economic and political trends, government regulations and corporate practice worldwide. The Economist Intelligence Unit delivers its information in four ways: through its digital portfolio, where the latest analysis is updated daily; through printed subscription products ranging from newsletters to annual reference works; through research reports; and by organising seminars and presentations. The firm is a member of The Economist Group. London The Economist Intelligence Unit 15 Regent St London SW1Y 4LR United Kingdom Tel: (44.20) Fax: (44.20) london@eiu.com Website: New York The Economist Intelligence Unit The Economist Building 111 West 57th Street New York NY 10019, US Tel: (1.212) Fax: (1.212) dantecantu@eiu.com Hong Kong The Economist Intelligence Unit 60/F, Central Plaza 18 Harbour Road Wanchai Hong Kong Tel: (852) Fax: (852) hongkong@eiu.com Electronic delivery This publication can be viewed by subscribing online at Reports are also available in various other electronic formats, such as CD-ROM, Lotus Notes, online databases and as direct feeds to corporate intranets. For further information, please contact your nearest Economist Intelligence Unit office Copyright 2004 The Economist Intelligence Unit Limited. All rights reserved. Neither this publication nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of The Economist Intelligence Unit Limited. All information in this report is verified to the best of the author's and the publisher's ability. However, the Economist Intelligence Unit does not accept responsibility for any loss arising from reliance on it. ISSN Symbols for tables "n/a" means not available; " " means not applicable Printed and distributed by Patersons Dartford, Questor Trade Park, 151 Avery Way, Dartford, Kent DA1 1JS, UK.

3 Tanzania 1 Contents 3 Summary 4 Political structure 5 Economic structure 5 Annual indicators 6 Quarterly indicators 7 Outlook for Political outlook 8 Economic policy outlook 10 Economic forecast 12 The political scene 17 Economic policy 18 The domestic economy 18 Economic trends 20 Agriculture 22 Mining 25 Financial and other services 27 Infrastructure 29 Foreign trade and payments List of tables 10 International assumptions summary 12 Forecast summary 19 Real GDP 19 Inflation 21 Volume and value of key traditional export crops 22 Pyrethrum purchases 26 Tourist numbers and earnings List of figures 12 Gross domestic product 12 Consumer price inflation 20 Exchange rate 23 Gold production and prices 31 Total Tanzanian assets held abroad

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5 Tanzania 3 Summary February 2004 Outlook for The political scene Economic policy The domestic economy Given the political domination of the ruling party, Chama Cha Mapinduzi (CCM), the Economist Intelligence Unit expects the party to win overwhelming victories in both the presidential and parliamentary elections which are due to be held in late However, given that the president, Benjamin Mkapa, will not stand for a third term (and will not amend the constitution in order to do so) the battle over who will lead the CCM to the polls is set to increase sharply over the next 18 months. On the economic front, we expect Mr Mkapa to retain his commitment to economic reform and to use his last two years in office to push ahead with structural and institutional reforms. Although this will lead to impressive real GDP growth rates of over 5% per year in and moderate inflation, the government will need to convince Tanzanians that they are benefiting from the reforms. The president underwent an operation on his hip in Switzerland in December 2003 and has recovered satisfactorily. The Civic United Front has threatened to file a court injunction if the National Electoral Commission (NEC) has not prepared a permanent voter register before the next general elections. Despite the closure of a controversial newspaper, Dira, on the island of Zanzibar, in general the environment for the media has improved with the publication of the new Information and Broadcasting Policy. Following the repatriation of the majority of Rwandan refugees, the Tanzanian government has now started the repatriation of Burundian refugees. Although it has not had an obvious impact on overall real GDP and inflation data, 2m Tanzanians are being affected by drought and are likely to require food aid in the first half of Although the majority of levies and local taxes imposed by local governments have been officially abolished, there have been reports that local governments have passed legislation introducing new taxes, to compensate for the loss of revenue. The government of Zanzibar has failed to implement the IMF's recommendations by refusing to retrench civil servants. Real GDP expanded by 4.7% in the first six months of 2003 owing to fair growth across a number of sectors (excluding agriculture). Barrick Gold has decided to open a second mine in Tanzania, the Tulawaka mine. The Presidential Parastatal Reform Commission (PSRC) has announced that it will offer 49% of the National Microfinance Bank (NMB) for sale to core investors and 21% to individual investors. A new tourism policy that aims to market Tanzania as a high class tourism market is in the offing. Foreign trade and payments The East African Community customs union treaty has been delayed as tariff levels have not been finalised. The governor of the central bank has claimed that Tanzanians hold as much as US$2.5bn in assets outside the country. Editors: Ravi Bhatia (editor); Pratibha Thaker (consulting editor) Editorial closing date: February 13th 2004 All queries: Tel: (44.20) london@eiu.com Next report: Full schedule on

6 4 Tanzania Political structure Official name Form of state Legal system National legislature National elections Head of state National government Main political parties United Republic of Tanzania Republic, formed by the 1964 union of Tanganyika and Zanzibar Based on English common law, the 1977 union and 1985 Zanzibar constitutions, as amended National Assembly, comprising 295 members (231 directly elected on the mainland; five delegates from the Zanzibar parliament; the rest appointed); Zanzibar's House of Representatives (59 members, including 9 women appointees) legislates on internal matters October 2000 (legislative and presidential); next elections due in October 2005 (legislative and presidential) President, elected by universal adult suffrage every five years The president, vice-president and Council of Ministers; cabinet reshuffled October 2000 Chama Cha Mapinduzi (CCM); Civic United Front (CUF); National Convention for Construction and Reform (NCCR-Mageuzi); United Democratic Party (UDP); Chama Cha Demokrasia na Maendeleo (Chadema) Key ministers Central bank governor President Vice-president Prime minister Communications & transport Community development, women's affairs & children Defence Education Energy & mineral resources Finance Food & agriculture Foreign affairs Health Home affairs Industry & trade Justice & constitutional affairs Labour & youth development Lands & human settlement development Natural resources & tourism Science, technology & higher education Water & livestock development Works Daudi Ballali Benjamin Mkapa Ali Mohamed Shein Frederick Sumaye Mark Mwandosya Asha Rose Migiro Philemon Sarungi Joseph Mungai Daniel Yona Basil Mramba Charles Keenja Jakaya Kikwete Anna Abdallah Ramadhan Mapuri Juma Ngasongwa Harith Bakari Mwapachu Juma Kapuya Gideon Cheyo Zakia Meghji Pius Ngwandu Edward Lowassa John Magufuli

7 Tanzania 5 Economic structure Annual indicators 1999 a 2000 a 2001a 2002 a 2003 b GDP at market prices (TSh bn) 6, , , ,071.8 b 9,978.2 GDP (US$ bn) b 9.6 Real GDP growth (%) c 6.2 b 5.2 Consumer price inflation (av; %) Population (m) Exports of goods fob (US$ m) Imports of goods fob (US$ m) 1, , , , ,673.7 Current-account balance (US$ m) Foreign-exchange reserves excl gold (US$ m) , , ,100.0 Total external debt (US$ bn) b 6.5 Debt-service ratio, paid (%) a 7.9 b 6.6 Exchange rate (av) TSh:US$ ,038.2 a a Actual. b Economist Intelligence Unit estimates. c Official estimate. Origins of gross domestic product 2002a % of total Components of gross domestic product 1999 % of total Agriculture, forestry & fishing 44.0 Private consumption 74.7 Mining 2.0 Government consumption 18.0 Manufacturing 7.4 Gross fixed capital formation 18.7 Construction 4.5 Increase in stocks 0.2 Services 32.7 Exports of goods & non-factor services 23.9 Imports of goods & non-factor services Principal exports 2002a US$ m Principal imports 2002a US$ m Gold 383 Consumer goods 369 Cashew nuts 47 Machinery 368 Coffee 35 Industrial raw materials 208 Tea 30 Petroleum products 196 Cotton 29 Food and foodstuffs 145 Main destinations of exports 2002b % of total Main origins of imports 2002b % of total UK 17.9 South Africa 11.4 France 16.8 Japan 8.3 India 7.1 Kenya 6.7 Netherlands 6.0 India 6.4 a Official estimates. b Subject to a wide margin of error.

8 6 Tanzania Quarterly indicators Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr Central government finance (TSh bn) Revenue & grants n/a n/a Expenditure n/a n/a Adjustment n/a n/a Balance n/a n/a Prices Consumer prices (1995=100) Consumer prices (% change, year on year) Financial indicators Exchange rate TSh:US$ (av) , , , Exchange rate TSh:US$ (end-period) , , , Deposit rate (av; %) Discount rate (end-period; %) Lending rate (av; %) Treasury bill rate (av; %) M1 (end-period; TSh bn) , M1 (% change, year on year) M2 (end-period; TSh bn) 1,637 1,745 1,798 1,931 2,048 2,088 2,206 2,297 M2 (% change, year on year) Sectoral trends Productiona (annual totals; '000 tonnes) Coffee 58.1 ( 58.1 ) ( 58.1 ) Seed cotton ( ) ( ) Sisal 25.2 ( 25.2 ) ( 25.2 ) Foreign trade (TSh bn) Exports fob Imports cif Trade balance Foreign reserves (US$ m) Reserves excl gold (end-period) 1, , , , , , , ,922.4 a Crop year, ending year shown. Provisional for & Sources: Food and Agricultural Organisation; Bank of Tanzania, Economic Bulletin; IMF, International Financial Statistics.

9 Tanzania 7 Outlook for Political outlook Domestic politics Tensions and discontent on Zanzibar Given the political domination of the ruling party, Chama Cha Mapinduzi (CCM), the Economist Intelligence Unit expects it to win overwhelming victories in the presidential and parliamentary elections which are due to be held in late However, given that the president, Benjamin Mkapa, will not stand for a third term (and will not amend the constitution in order to do so) the battle over who will lead the CCM to the polls is set to increase sharply over the next 18 months. In fact, the operation on Mr Mkapa's hip in a Swiss hospital in late 2003 came as a sharp reminder that the president will one day depart from office and could well be the spark the sets off a bout of internal jostling within the party as potential leaders seek to establish their position as possible successors. However, it is also easy to read too much into this political manoeuvring and it is just as possible that the eventual presidential candidate will, rather like Mr Mkapa, be a compromise candidate who emerges late in the selection process. Meanwhile, despite health concerns, we expect Mr Mkapa to retain his commitment to economic reform and to use his last two years in office to push ahead with structural and institutional reforms. Although this will lead to impressive real GDP growth rates of over 5% in and moderate inflation, the government will need to work hard to convince Tanzanians that they are benefiting from the reforms. Although we expect the CCM to win the 2005 elections, it is possible that an opposition party, probably the Civic United Front (CUF), may be able to build on its political stronghold in Zanzibar and capitalise on the discontent with government economic policy in urban areas to win seats, although not to the extent that it has a chance of winning the elections. None of the other existing opposition parties has managed to put together a coherent, or even populist, challenge to the government, and the recent formation of a coalition to coordinate their campaign for the next election is unlikely to change this. Any major change in Tanzania's political make-up is more likely to result from a split in the CCM but the split would need to be large enough to create an opposition faction capable of posing an effective challenge to the government. Although the press often reports rumours of splits within the CCM, a major rupture is extremely unlikely in However, tensions between competing factions could escalate in the run-up to the 2005 elections, furthering the risk of a split if one faction were to feel alienated by the party's candidate for the presidential poll. Although the Tanzanian mainland will remain one of the most politically stable parts of Sub-Saharan Africa, there are two potential sources of political unrest, and even violence, in the country. The first is the semi-autonomous island of Zanzibar, where disputed elections between the CCM and the CUF in 1995 and 2000 eventually erupted into violence that caused around 31 deaths in late January Despite strong donor engagement in a reconciliation process between the parties, violence is possible in the run-up to the 2005

10 8 Tanzania elections, particularly if there is only limited progress towards reforming the electoral commission and drawing up a permanent register of voters. The second threat to political stability comes from religious tension on the mainland, although the threat should not be exaggerated. There have been outbreaks of religious violence in recent years against a background of political tension on Zanzibar and disaffection among urban Muslims, who feel that they have not benefited from Tanzania's economic reform programme and that they have suffered from lack of educational opportunities. However, neither of the potential sources of unrest will have a significant impact on Tanzania's overall political stability. International relations Tanzania will maintain good relations with its regional neighbours and with donor countries. The main issues with donors will be technical, and will focus on ensuring a more accountable and co-ordinated flow of aid into the country. Regional issues are likely to dominate foreign policy in , as Tanzania assumed the presidency of the Southern African Development Community (SADC) for a year from October The issue of refugees (predominantly those who fled the civil war in Burundi and are now based in Tanzania in the border areas) will also be a major concern for the government, which will keep up its efforts to remind donor governments of the costs faced by a poor country in hosting large numbers of refugees on a long-term basis. The government is also likely to work hard with the Kenyan government to counter any perception that East Africa is a safe haven for terrorists. Economic policy outlook Policy trends In the past few years, guided by an IMF- and World Bank-sponsored reform process aimed at controlling the fiscal deficit and liberalising the economy, the government has made good progress in creating a stable macroeconomic environment and boosting real GDP growth. We do not expect this overall policy thrust to change over the forecast period. Given Tanzania's relative macroeconomic stability, the main task for the government will be to carry out the structural and institutional reforms that are needed to support real GDP growth of 7-8% per year and thus bring about a sustained reduction in poverty. The government will also continue to receive donor support to finance large increases in public spending on primary education and healthcare. So far, good progress has been made only in primary education an area in which Tanzania has traditionally been successful. The key to sustained economic growth will be the diversification of the economy, better infrastructure and improved agricultural performance (which will be more difficult to achieve, as little progress has been made on expanding export crops or restructuring crop boards). There is also a need to strengthen the legal system and reduce corruption. Although there is support for reform within the government and among senior civil servants, there are strong vested interests opposed to liberalisation, particularly in the agricultural sector. In addition, implementation will be slow because of a lack of capacity in the civil service.

11 Tanzania 9 Fiscal policy Monetary policy The economic stability of recent years has been underpinned by Tanzania's system of strict cash budgeting, which has kept the budget deficit firmly under control. Given the success in controlling expenditure, fiscal policy will continue to concentrate on better spending management; in particular, the government will seek to improve the civil service's capacity to implement projects. The government will also try to widen the tax base, improve tax administration and eliminate taxes that are a drag on business. These were all themes of the 2003/04 (July-June) budget and will remain important issues in the 2004/05 budget, which is due to be presented in mid-june. However, with elections beginning to loom in the mind of the finance minister, a major proportion of the forthcoming budget is also likely to focus on the expenditure side of the equation and the spending the government is undertaking to improve social services and the lives of the poor. Although there are likely to be further rises in government expenditure in the coming years as the government seeks to increase spending on agriculture, health, education and transport, owing to the Ministry of Finance's commitment to fiscal discipline, strong levels of donor support and the government's ongoing weaknesses in project implementation, the fiscal deficit is only likely to rise moderately. We expect the government to run a budget deficit of 1.2% of GDP in 2003/04 (excluding grants, this is equivalent to 6.5% of GDP), rising to 1.6% of GDP (6.6% of GDP, excluding grants) in 2004/05. The drafting of a supplementary budget confirms our belief that the government will spend more than it originally forecast in 2003/04. We have also assumed that not all the grants expected will be delivered; US$1.2bn of grant aid was expected by the government for 2003/04, but only US$560m is forecast to be disbursed. We forecast that US$588m of grant aid will be disbursed in 2004/05 and US$617m in 2005/06. The fiscal deficit will be financed via domestic and external borrowing. As a result of the government's good fiscal discipline in recent years, the Bank of Tanzania (BoT, the central bank) has been able to bring inflation down to one of the lowest rates in Sub-Saharan Africa without having to tighten monetary policy excessively. To date, monetary policy has set targets for the rate of money supply growth; the most recent monetary policy statement, in June 2003, set a growth rate of 10-12% for broad money (M2) for the year ending June 2004 in order to achieve an inflation target of 4%. We do not expect this target to be achieved, owing to structural constraints and because the poor rains in 2003 caused inflation to rise in the second half of the year. However, inflation will remain moderate and fairly stable. Given the difficulty of hitting such precise inflation targets, we expect the central bank to move to more flexible inflation targeting (where a target range is set) towards the end of the forecast period. Given a moderate loosening of fiscal policy in 2005, the bank is likely to follow with a slightly tighter monetary policy.

12 10 Tanzania Economic forecast International assumptions International assumptions summary (% unless otherwise indicated) GDP growth World OECD EU Exchange rates :US$ US$: SDR:US$ Financial indicators 3-month interbank rate US$ 3-month Libor Commodity prices Oil (Brent; US$/b) Gold (US$/troy oz) Cotton (US cents/lb) Coffee (Arabica; US cents/lb) Tea (US$/kg) Food, feedstuffs & beverages (% change in US$ terms) Industrial raw materials (% change in US$ terms) Note. Regional GDP growth rates weighted using purchasing power parity exchange rates. The global economy is recovering rapidly, and we forecast that world GDP growth (on a purchasing power parity basis) will average 4.3% in 2004, before slowing to a still robust 4% in However, although the US economy will pick up relatively quickly in , growth in the EU will edge up slowly. The outlook for the prices of Tanzania's main exports is mixed. Prices for coffee and tea will remain depressed, owing to global oversupply. The price of gold will soar to a high of US$421.3/troy oz in 2004 (as investors begin selling dollars and moving into gold), before falling to US$375/troy oz in Cotton prices will also improve in , supported by strong global demand. Global oil prices are likely to fall throughout the forecast period as tensions in the Middle East begin to subside and Iraqi oil comes on stream. Oil prices are forecast to fall from US$28.7/barrel in 2003 to US$22.4/b in 2004 and US$20.1/b in High gold prices will deliver higher overall export earnings for Tanzania. Economic growth Real GDP is forecast to grow by 5.5% in 2004 and 5.8% in 2005, reflecting a rebound in both tourism and agriculture. Industrial output and retail trade will remain strong, as will mining, manufacturing and infrastructure development. Despite the adverse effect of weather conditions on agriculture in 2003, the setback is unlikely to be as great as it would have been in the mid-1990s. The better economic management of recent years and progress with reform have improved the resilience of the economy and it now has a "growth floor" of about 3%, even if the rains are poor. However, it is not yet dynamic enough to achieve the annual growth rates of 7-8% needed to have a significant impact on poverty. Poverty will be overcome only with further reform, as structural

13 Tanzania 11 constraints, including weak marketing institutions, poor rural infrastructure, and a shortage of credit and agricultural inputs, continue to limit growth. Inflation Exchange rates External sector Although inflation remained low in 2003, averaging 4.4% for the year, the rate did rise in the final three months of the year, driven by the sharp increase in food prices caused by the ongoing food shortages in some parts of the country (the trend in food prices is particularly important, as food accounts for over 70% of the consumer price index). These increases are likely to continue into the early part of 2004 and will only moderate towards the middle of the year, which will make it difficult for the BoT to reach its inflation target of 4% for the year ending in June Despite the increase in inflation in late 2003 and early 2004, we still expect inflation to remain low and stable throughout the forecast period, averaging 4.5% in 2004 and 4.4% in Both fiscal and monetary policy will remain sound and will keep inflation low, although there is always the risk that further problems with the weather could sharply push up food prices and the overall inflation rate. The Tanzanian shilling has fallen reasonably sharply in late 2003 and into early 2004 in line with a regular seasonal pattern whereby it depreciates in the first quarter of the year as multinationals repatriate profits before the end of the financial year and as few foreign-exchange earnings flow in. The shilling is then traditionally expected to stabilise in April-June, as cotton and coffee exports bring in foreign exchange, and to remain steady in September- November, on the back of inflows of export receipts from cashew nuts. The period June-November is also the peak tourist season and an important source of foreign exchange. Therefore, despite the fall in the first quarter of 2004, the shilling should be more stable for the rest of 2004 as the traditional sources of foreign exchange pick up during the course of the year and the US dollar remains weak on global markets. We forecast that it will average TSh1,150:US$1 for 2004, ending the year at TSh1,200:US$1. The downward pressure on the shilling is likely to intensify in 2005, when falling global gold prices will reduce export receipts as imports pick up owing to the pre-election boom. We therefore expect the shilling to depreciate more quickly than in 2004, averaging TSh1,266:US$1 and ending the year at TSh1,309:US$1. Total exports are forecast to edge up in 2004, to US$1.2bn, supported largely by higher international gold prices. However, as global gold prices fall back, even with rising production, total exports will fall slightly in 2005, to US$1.1bn. Imports are forecast to rise in line with real GDP growth and rising investment, to reach US$1.8bn in Services credits suffered a temporary setback in the first half of 2003 as tourism earnings fell, but are expected to pick up again in Debt relief under the IMF-World Bank's heavily indebted poor countries (HIPC) initiative has reduced interest payments over the past five years, but profit remittances by gold mining companies are forecast to pick up in , causing income debits to fluctuate during that period. Inflows of current transfers have declined in recent years as donors have rationalised their support programmes. Nevertheless, donor support will remain substantial and the current transfers account will remain firmly in surplus in Overall,

14 12 Tanzania the current-account deficit is forecast to improve from an estimated 5.2% of GDP in 2003 to 3.3% of GDP in 2004, before widening to 4.8% of GDP in Forecast summary (% unless otherwise indicated) 2002a 2003 b 2004c 2005c Real GDP growth 6.2b Gross agricultural production growth 5.0b Consumer price inflation (av) Consumer price inflation (year-end) Short-term interbank rate Government balance (% of GDP) Exports of goods fob (US$ bn) Imports of goods fob (US$ bn) Current-account balance (US$ bn) Current-account balance (% of GDP) -2.7 b External debt (year-end; US$ bn) 6.5b Exchange rate TSh:US$ (av) ,038.2 a 1, ,265.8 Exchange rate TSh: 100 (av) a 1, ,188.5 Exchange rate TSh: (year-end) 1, ,334.0 a 1, ,754.1 Exchange rate TSh:SDR (year-end) 1, ,571.5 a 1, ,004.5 a Actual. b Economist Intelligence Unit estimates. c Economist Intelligence Unit forecasts. The political scene The president undergoes surgery on his hip in Switzerland Political discussion in Tanzania in the run-up to Christmas and the New Year and immediately afterwards has been dominated by the visit to a Swiss hospital by the president, Benjamin Mkapa, for an operation on his hip. The president's medical problems had started to become increasingly obvious from August 2003 when he first appeared in public walking with a cane at the Southern African Development Community (SADC) heads of government summit (the summit was held in Dar es Salaam). According to a press statement from State House, Mr Mkapa left the country for the Swiss hospital on November 10th and the first tests were carried out on November 15th. He

15 Tanzania 13 returned just before Christmas, stopping briefly in Kenya on the way back for some minor discussions with the Kenyan government. Although the vice-president, Ali Mohamed Shien, became the acting head of state in Mr Mkapa's absence, this did not stop a minor political row blowing up with the opposition. Some leaders of the opposition parties publicly claimed that the president should have signed a declaration of a transfer of power before he underwent the operation, although this is clearly not required in the constitution. Other opposition leaders seemed more incensed that the president had given his monthly address to the nation from abroad, which they claim should have been done by the acting head of state, Mr Shien. The radio address was recorded in the president's hospital suite in Switzerland. However, the battle seemed to be restricted to within the press, without sparking a wider political debate, and for most political analysts simply highlighted the paucity of the political debate within the country and the fact that the opposition has little prospect of making any inroads into the parliamentary majority held by the ruling Chama Cha Mapinduzi (CCM) party in the general election due in late In contrast, most people on the streets seemed more interested to know if the president was well and if they had any real concerns, given that the president has seemingly been sneaked in and out of the country with only minimal public announcement by the government. A reduction in the minimum voting age is proposed The CUF presses for progress with establishing a voter register However, in mid-january the opposition did manage to push a more interesting political issue into the public spotlight, namely whether the minimum voting age in the country should be reduced from 18 years old to 15, and whether the minimum age for parliamentary candidates should be lowered from 21 to 18 and the age of presidential candidates from 45 to 35. James Mbatia, the chairman of the coalition of opposition parties (November 2003, The political scene), who is also the leader of the National Convention for Construction and Reform (NCCR), claimed that at the age of 15 most Tanzanians had completed their formal education and were sufficiently politically aware to vote they can also get married and have to pay tax if in employment. However, the main opposition party, the Civic United Front (CUF), did publicly state that it did not support the move on the grounds that the new voters would be too young. The CCM, unsurprisingly, has not given the idea any serious internal discussion, but would generally see no reason to change the status quo. For the opposition, the main benefit of the move would be that it would expect the young voters in urban areas that would be enfranchised by the move, to support them rather than the CCM. However, the CUF did keep up the pressure on the government in its own fashion when, at a press conference in Dar es Salaam, the party's national chairman, Ibrahim Lipumba, claimed that his party would file a court injunction, which could potentially block any vote going ahead, if the National Electoral Commission (NEC) and the Zanzibar Electoral Commission (ZEC) had not prepared a proper permanent voter register before the general elections, which are due in October At the press conference, Mr Lipumba said he had raised the problem because the CUF had received a letter from the NEC stating that if it failed to get funds by next month, it would be impossible to

16 14 Tanzania have set up the register before the next general elections. The CUF chairman also claimed that he did not believe that the NEC could not find the funds. The issue of preparing the electoral register is particularly important for the CUF, who believe, with some justification, that the lack of a proper register on Zanzibar has been a major source of voting irregularities. The lack of a voters' register is a potential source of tension Politics remain tense on Zanzibar The opposition newspaper Dira is banned Reform of the ZEC and the establishment of a proper permanent voters' register on Zanzibar are an important component of the Muafaka peace accord agreed between the Zanzibari government and the CUF opposition, which aims to reduce tensions following the killing of over 30 CUF supporters in The government did announce in early November that it estimated that it needed around TSh20bn (US$19.2m) in order to establish a permanent voters' register and that it has been holding meetings with various donors, co-ordinated by the UN Development Programme (UNDP), in order to raise the money. The government is also seeking support from donors to introduce a national identity card scheme which has been in the pipeline for some time and which would help in the establishment of the voter's register (November 2003, The political scene). Recently, there have been some indications from ministers that the scheme could move ahead in the not too distant future, but progress remains slow and could be a major source of political tension if not resolved before the 2005 elections. Since by-elections for Pemba's seats in the House of Representatives and the national parliament were held on the island of Pemba in May 2003, progress in implementing the Muafaka peace accord seems to have slowed down and Zanzibar remained deeply politically divided as it celebrated its 40th anniversary of independence on January 12th The politics of the islands have also become slightly more complicated in recent months as a number of newly formed parties have sprung up. The first reported development is an apparent split in the newly established Safina party (Safina means "ark" in Kiswahili; November 2003, The political scene). Some of the top leadership from the Zanzibar north district have left to form a new party called Hidaya (which translates as "precious gift"), amidst allegations that their departure is the result of an attempt by the CCM to divide the opposition by offering covert financing for those forming the new party. Meanwhile, the Solidarity of Force Three (Soft), which was awarded interim registration in June 2003, has become involved in a battle with the registrar of political parties, John Tendwa, who argues that it needs to sort out various irregularities in its registration if it is to obtain temporary registration and wants to organise political demonstrations. The party had hoped to organise a rally as part of the independence day celebrations but had been refused permission by the police on the grounds that it was not registered. It is likely that it will be permitted to register soon as grounds for denying it registration are weak. The government of Zanzibar has increased the political temperature on the island by banning the new weekly opposition paper, Dira, in late December. According to the Zanzibari government, the paper was suspended because of a lack of "professional ethics". The battle between the government and the paper has been slowly growing since the paper was launched, particularly because its

17 Tanzania 15 claimed circulation of 8,000, is far greater than that for any other newspaper on the islands. The Zanzibari government claims that initially, rather than close the paper, it tried to get the issues that concerned it addressed through the Media Council of Tanzania. A new Media Council is launched A new media policy allows foreign ownership Burundian refugees face repatriation Under the new Information and Broadcasting Policy, The Media Council has emerged as the official body to protect the rights of consumers and to try and resolve incidents when the public or government are concerned that the media is not acting professionally. According to the Media Council, the paper had probably made some editorial mistakes, but was not given time to react to the concerns of the Zanzibari government. The government has apparently raised a host of issues with the paper's editor, Ali Nabwa, ranging from claims it made that the islands' president, Amani Karume, was not a Zanzibari, to allegations that it was inciting people to break the law. However, rather than accept a constructive dialogue, Mr Nabwa refused to co-operate and relations quickly deteriorated. However, the editor of the Media Council's own newspaper, Media Watch, Kajubi Mukajanga, still did not feel that this justified the government closing the paper down. The Zanzibari government took its actions against Dira a stage further when it said that it would also take legal action against the editorial board of the newspaper if it tried to publish an Internet version of the paper. Not surprisingly, the editorial board of the newspaper has decided to challenge the ban in the courts. The court action is likely to drag on for some time and will simply heighten political tensions on the islands. Despite the closure of Dira, in general the environment for the media on the mainland has improved in recent months with the publication of the new Information and Broadcasting Policy. The policy is based on the quasi-socialist idea that mass media should not be used for the benefit of its owners, but for the country as a whole, and that the government should actively seek to ensure that this is the case. Nevertheless, the policy also includes a number of important developments. First it will allow foreigners to invest in the mass media in Tanzania as long as they have a minority stake in the company (less than 50%). It should also allow the private sector to develop nationwide radio and television networks, which are limited at the moment, provided that they comply with the guidelines set by Tanzania Communication Regulatory Authority (TCRA). Although the policy was broadly welcomed by the Media Law Reform Project, which brings together a range of parties interested in the Tanzanian media, the pressure group did raise a number of important concerns. In particular, there were concerns that the new legislation did not fully address the issue of concentration of ownership, particularly across different media forms. Tanzania's private media is already heavily dominated by the IPP group, headed by Reginald Mnegi, who has close links with the CCM. Having ensured that virtually all the Rwandan refugees in Tanzania were repatriated to their own country in the second half of 2003, the Tanzanian government has turned its attention to trying to reduce the numbers of Burundian refugees in the country, given the moves to establish peace in Burundi. In late January the UN Refugee Agency (UNHCR) sent an emergency team to Burundi, which, in turn, has set up field offices in the provinces

18 16 Tanzania bordering Tanzania. This will help the process of returning the 300,000 Burundian refugees currently estimated to be in Tanzania. The governments of Tanzania and Burundi and UNHCR are also working on the practicalities of the repatriation, notably resolving issues such as the need to either open new border posts or improve capacity at existing ones, and agreeing on the number of convoys that can pass through them each week. At the most recent meeting of the Tripartite Commission on the Voluntary Repatriation of Refugees in Arusha in late January, it was agreed that the Mabamba-Gisuru crossing point should be immediately re-opened, by the end of the month, and that the Manyovo-Mugna crossing point should be opened in April. The immediate focus of the repatriation campaign will be on those refugees actually living in camps, although given the long history of Burundian refugees fleeing to Tanzania, there are many more long-term refugees who live in the border regions. According to UNHCR, a total of 68,000 refugees have returned home since it started assisting the voluntary repatriation process in March 2002, while another 45,000 have returned under their own impetus, although the numbers are obviously set to pick up sharply in A long-term effort is under way to combat the impact of refugees The Tanzanian government has long complained that after the initial appeals to support refugees have died down, donors quickly forget about the long-term implications of hosting large number of refugees. To try and help address this problem, a number of UN agencies are to join forces in Tanzania in 2004 to launch a consolidated Plan of Action. The aim of the plan is to try and adopt a more comprehensive and collaborative approach to dealing with the problems of hosting large numbers of refugees which takes into account both the needs of the refugees and the local population. In this respect, the Plan of Action has four main objectives: the alleviation of human suffering and hunger; the protection of human rights; the provision of basic services; and the formulation of a long-term sustainable programme for the development of western Tanzania. In order to achieve these goals, the agencies will aim to improve policy in a range of areas. For example, they will not only look at feeding refugees, but at the long-term impact of providing large amounts of food aid to a region that focuses on the agricultural sector for example, food aid can depress prices, undermining the livelihood of local farmers. Refugees from the DRC arrive, but should leave quickly Although a long-term solution to the problem of Burundian refugees in the country is now being considered, since September another wave of refugees has been entering the country from the Democratic Republic of Congo (DRC), owing to fighting in the DRC's Ituri province. UNHCR estimated that by the end of September 2003 there were a total of 177,946 Congolese refugees in the country. The Tanzanian government, UNHCR and the government of the DRC are actively considering a quick and voluntary repatriation of these refugees as early as possible in 2004.

19 Tanzania 17 Economic policy The drought has a large human impact Implementing the ban on local levies and taxes hits problems Although the drought experienced in 2003 has not had an obvious impact on real GDP and inflation data, it is still having a large human impact. In his new year's address to the nation, the president, Benjamin Mkapa, noted that 2m Tanzanians were still affected by food shortages as a result of the drought and would require food aid in the first half of There also seems to be no immediate end in sight to the dry weather; USAID's Famine Early Warning System (FEWS) noted in its December 2003 Food Security Report that the poor short rains in late 2003 will have an impact on production in those areas that have two crops in a year, notably the north of the country. The drought in the country has also developed a political dimension in the final few months of 2003, with some opposition politicians claiming that some of the country's district and regional commissioners were underreporting the full extent of the impact of the drought, following a threat by the prime minister, Frederick Sumaye, that if there were problems with the distribution of food aid they could face dismissal. However, it is not clear that the problems with food distribution can be laid entirely at the door of local and regional government in Tanzania. In its December report, FEWS noted that while the plan outlined to combat the drought in August 2003 was well thought out, it has been poorly implemented. FEWS claims that although the government had planned to release 32,540 tonnes of food aid from the strategic grain reserve between October and November, only 17,215 tonnes had been released by the end of December (and of this, only 61% had been distributed to its intended recipients). The plan also called for around 45,000 tonnes of food aid to be provided by donors, but only about 60% of this had been delivered by the end of the year, which has forced the government to seek alternative supplies. In this respect, the minister of agriculture and food security, Charles Keenja, has publicly announced that the government will seek to buy an additional 200,000 bags of maize from Kenya, worth US$3.7m, for subsequent distribution as food aid. The controversy should at least force the government to take more decisive action and we expect its efforts to ensure that food aid is distributed properly to improve in the first half of Although the abolition of many of the levies and local taxes imposed by local governments which businessmen and investors have long identified as a major problem was announced with much fanfare in the 2003 budget, the practical difficulties of achieving this have become obvious in the last few months (August 2003, Economic policy). In particular, there were a series of press reports in January that the Mwanza city council (Mwanza, on the shores of Lake Victoria, is the second largest city in the country), having abolished all its levies/local taxes as required under the budget, simply passed new legislation which reintroduced a range of taxes on fish products and agricultural products being brought into the city. The problem for many of the local governments is that although the central government announced the abolition of the taxes and levies, it did not offer a sufficient increase in financial transfers to fully offset the financial loss. Moreover, given the difficulty of

20 18 Tanzania enforcing the measure, many municipal councils probably estimate that they can continue to levy such taxes and charges on small-scale traders with a degree of impunity from central government. Imposing them on larger enterprises, however, is likely to prove far more difficult. Civil-service retrenchments become a major policy issue on Zanzibar With the issue of retrenchments from parastatals a hot political subject on the mainland, the issue took on a new dimension in Zanzibar following recommendations by the IMF and the World Bank that the Zanzibari government should seek to reduce the number of civil servants that it employs. The recommendation is one of a number made by the Fund following an IMF mission to the island in November to look at the overall policy options for Zanzibar, notably fiscal reform and how to address the chronic state of the banking system which has huge non-performing loans (over 50% of loans made are non-performing), owed mainly to the government and parastatals. The problem for the government is that with the economy in recession for the last few years, the civil service has been the main source of employment. The chief minister on Zanzibar, Shamsi Vuai Nahuodha, was quoted as saying that although the civil service employs only around 2% of the island's total population, this represents a large number of people and that given the economic implications of reducing the number, the move would not be practical and efforts should instead be made to improve the efficiency and effectiveness of the civil service. However, the burden of such a large civil service is readily apparent with the government often paying salaries late and sometimes not even paying them for several months at times when revenue is suffering. This has been the case throughout 2003, when the fall in tourist numbers following the November 2002 terrorist attacks in Kenya and the substantial decline in world clove prices have both had a major impact on the government's revenue. The domestic economy Economic trends Real GDP expands by 4.7% in the first six months of 2003 In late November the National Bureau of Statistics (NBS) released its estimates for GDP growth in the first half of According to the NBS, real GDP grew by 4.7% compared with the first six months of As in recent years, the fastest growing sector was construction, which expanded by 9.8%. This was closely followed by growth of 9.5% in mining and 5.6% in the manufacturing sector. As we have forecast for some time, the agricultural sector has been a drag on overall growth in 2003, given the drought during the year. The agricultural sector expanded by only 3.2%, although, on a more positive note, it is estimated to have picked up a little in the second half of the year as output of some of the larger cash crops cotton, coffee and cashew nuts was not as badly affected by the drought as that of food crops. However, the half-year figures are not as detailed as the annual ones and do not include the breakdown between marketed agricultural production and non-marketed agricultural production, and it is the latter that is most likely to be affected by the drought. For 2003, real GDP is estimated to have increased by 5.2%, which,